Future retirees at risk of downward mobility, Pew finds

The retirement prospects of Americans are slipping for the first time in generations, according to a report released Thursday, adding a new voice to those warning that future retirees face the risk of downward mobility when they leave the workforce.

The report by the Pew Charitable Trusts said that Americans born after 1955 are carrying more debt than the generations that came before them, putting them in danger of not having enough savings to maintain their standard of living in retirement.

The report estimates that, at the median, Americans born between 1966 and 1975 — so-called Gen-Xers — will be able to replace just half their pre-retirement income once they stop working, well below the minimum 70 percent replacement rates recommended by most financial planners. Late baby boomers — which the report defines as those born between 1956 and 1965 -- will be able to replace 60 percent of their working incomes in retirement, the report estimates. Both replacement rates are below what financial experts say is necessary for a secure retirement.

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"Late boomers and Generation-Xers lost significant amounts of wealth during the Great Recession, eroding their already low levels of assets," said Erin Currier, director of Pew's Economic Mobility Project. "As policy makers focus on Americans' retirement security, particular consideration should be paid to how younger generations of workers can make up for these losses and prepare for the future."

The new report from Pew, a nonpartisan authority on public policy issues, adds to the growing concern about retirement security as policymakers face financial pressure to trim programs such as Social Security and Medicare that form the mainstay of financial support for the nation's rapidly aging population.

The report found that the country is on the verge of a pronounced shift in retirement security. Buoyed by the run-up in housing values over the past two decades and ballooning stock prices caused by the dot-com boom, Americans born between 1946 and 1955, are approaching retirement well prepared. They have more financial assets and greater home equity, on average, than people born between 1926 and 1935 or those born between 1936 and 1945, the so-called war babies.

But the report said neither late boomers nor Gen-Xers are on track to build on that progress, largely because they are carrying more debt, often in the form of student loans, higher mortgages and credit card balances. Those trends were only magnified by the Great Recession, which cost Gen-Xers nearly half their wealth — far more than other age cohorts, according to the report.

The report examines finances only up to 2010. But researchers believe that the findings are still relevant even though the economy has been in a slow recovery since. Unemployment rates, while ebbing, have stayed far above historical norms. Meanwhile, housing values — the biggest source of wealth for most Americans — remain far below pre-recession peaks, despite recent increases. In addition, the benefits from the surging stock market have gone mainly to the nation's top earners, widening the nation's wealth inequality.

The Pew report also predicted increasing wealth inequality within each successive age group as they approach retirement. For example the wealth gap between the poorest and most affluent Gen-Xers is expected to be larger at retirement than the gap separating the poorest and wealthiest late boomers.

The recession compounded factors that were already hurting the finances of future retirees. They included ever-rising health-care costs, growing household debt and an increasing reliance on individuals to plan and save for their own retirements, a responsibility previously borne largely by employers.

Half of American workers have no retirement plans through their jobs, leaving people on their own to save for old age. Meanwhile, four out of five private-sector workers with retirement plans at work have only 401(k)-type defined contribution accounts rather than traditional pensions that pay retirees a fixed benefit for life. Researchers have repeatedly found that workers with defined-contribution accounts often do not save enough, make unwise investment choices or dip into their retirement savings too often for non-retirement expenses.

The analysis in the Pew report was done by John Gist, a professor of public policy at George Washington University. The data used in the study came from the Federal Reserve's Survey of Consumer Finances and the Panel Study of Income Dynamics, conducted by the University of Michigan.